The new Elon Musk master plan for Tesla reeks of overconfidence

By Steve Brachmann
July 29, 2016

537px-Elon_Musk_-_The_Summit_2013

“Musk at the Heisenberg Media Summit in 2013” by Dan Taylor/Heisenberg Media. Licensed under CC BY 2.0.

When you’re Elon Musk, you get to do fun things like reveal master plans to the consumer masses. His most recent one was recently outlined in a July 20th post published on the official blog for Tesla (NASDAQ:TSLA), his electric vehicle producing company which recently dropped the “Motors” from the website name. The four-part plan discusses integrating energy generation and storage, expanding its transportation and vehicle options, increasing vehicle autonomy and enable car sharing to provide revenues to car owners.

The new master plan updates an older master plan which Musk had unveiled 10 years prior in another blog post on the Tesla site. That plan also had four prongs: build a sports car, use the money from that car’s sales to build an affordable to build an affordable car, use revenues from that car to build an even more affordable and providing zero-emission electric power generation options. It should be noted, Musk’s explanation of the 2006 plan in his 2016 post leans more heavily on solar when the original plan accounted more for the breadth of alternative energies in development, but his paraphrasing was otherwise consistent.

Tesla has shown some success in implementing the 2006 plan, especially where it comes to vehicle development. The Tesla Roadster was the company’s first vehicle and it was first produced in 2008 with a whopping $109,000 base price. The Tesla Model S, which began deliveries in December 2014, was marketed at a base price of $57,000, a sizable step down from the Roadster but still out of the reach of the mass consumer market. $35,000 isn’t exactly cheap but it does represent another price reduction which will be seen in the Tesla Model 3 when it begins shipping in 2017. That price tag still puts the Model 3 in a class above the base price seen in many vehicles produced by Ford (NYSE:F) and General Motors (NYSE:GM), but the downward trajectory is clear.

The past 10 years have also seen Musk involved in developing energy technologies. In June 2014, Tesla began construction of the Gigafactory, a lithium ion battery production plant located near Reno, NV, which the company expects will produce more lithium ion batteries in 2020 that the entire world produced in 2013. Last year, Musk made his vision for Tesla’s future as an energy company clear when the Powerwall battery was unveiled as an option for home energy storage. Tesla’s shift towards becoming an energy producer is further highlighted by current news reports about the company’s negotiations for merging with SolarCity (NASDAQ:SCTY), the solar power systems developer owned by Musk’s cousins and for which Musk serves as chairman.

The initial response to Musk’s new master plan outline included no small amount of scoffs from industry analysts. Some noted that the new vehicle options Tesla promised to roll out, including a compact SUV, an autonomous bus and a semi truck, will require a great deal in terms of development costs. Elon Musk may have deep pockets himself but go ahead and ask executives at Ford and GM if they could justify high research and development costs on the sale of 125,000 units over the course of eight years. Lucky for Musk, he was exceedingly light on the timeline details so as long as he produces those vehicles eventually, he gets to say that he followed through in due course. It’s probably all for the best, however, as Tesla has a tendency to miss its own production and shipment deadlines.

[Patent-Business]

Musk’s master plan is also overly optimistic on the SolarCity acquisition, which is still in the negotiation phases: “Now that Tesla is ready to scale Powerwall and SolarCity is ready to provide highly differentiated solar, the time has come to bring them together.” CEOs are typically pretty tight-lipped about mergers and acquisitions before they actually happen, but of course not many CEOs are Elon Musk. It’s also the truth that not many corporate executives are in the position of acquiring a company run by relatives, but Elon Musk truly is one-of-a-kind. And if Musk needed any additional help at the bargaining table, there’s also the tens of millions worth of SolarCity bonds that he’s purchased through SpaceX he could leverage.

It could also be troubling for observers to note that in the five paragraphs which Musk devotes to the autonomy section of his master plan, he never once mentions any of Tesla’s failures in this regard. This would include the recent death of a Florida man when his Tesla crashed while in Autopilot mode. Investigators noted that the car, which failed to recognize a tractor trailer and didn’t automatically brake, was also traveling nine miles per hour above the posted 65 MPH speed limit. Tesla’s official response on the incident indicated that the automatic brakes weren’t initiated because the white tractor trailer was indistinguishable against a bright sky backdrop. It was the first fatality in Autopilot mode over a total of 130 million miles driven. Tesla’s new master plan cites one fatality for every 89 million miles driven as a reason why autonomous technologies need to be developed. So if we can all just ignore this one death, Autopilot will still be our savior, Musk’s reasoning seems to suggest.

The car sharing concept is not so outlandish and indeed the idea is being tried out by at least one major automaker. Last year, Ford announced its own car sharing program that was being tried out in some American and UK cities. This May, GM announced that its car sharing startup, Maven, would be expanding its operations in Boston, Chicago and Washington, DC. Both Ford and GM would allow subscribers to these programs to schedule rentals where they pay by the hour; Ford’s system does allow for per-minute pricing. Insurance and other costs are covered by rental fees. These programs are small and are limited to a few cities but they’re still ahead of where Elon Musk wants Tesla to be.

Elon Musk’s updated master plan reeks of overconfidence. He envisions entire fleets of autonomous Tesla vehicles while missing recent sales targets by thousands of units. He wants to pump massive amounts of money into R&D for autonomous technologies and new types of vehicles, but the company is having trouble with bleeding warranty costs which are double the amount seen at Ford or GM. The lack of timeline details in the master plan was not well received by financial analysts and Tesla stock was down by 3 percent in the days after the announcement.

The future certainly looks bright to Elon Musk. It’s just hard to tell whether or not he’s viewing that future through rose-colored glasses instead of the hard lens of reality.

The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients and is available for research projects and freelance work.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 13 Comments comments.

  1. MILU July 29, 2016 9:54 am

    AS NOT BEING VERY WELL READ I BECAME AWARE OF THIS MAN ELON MUSK VERY RECENTLY BUT WHATEVER I HAVE READ AND SEEN IN U TUBE VIDEOS HAS REALLY IMPRESSED. I CANT THINK OF ANY OTHER PERSON WHO IS SO EAGER TO CHANGE THE WORLD , SO VAST AND DEEP IN THINKING AT A CONSIDERABLE YOUNG AGE, GRASPING ON THE NEED OF THE HOUR SUUBJECTS LIKE USING UNLIMITED RENEWABLE ENERGY , FAST CASHLESS PAYMENT SYSTEM, SUPER FAST MEANS OF HYPER LOOP TRANSPORTATION, FOR HUMANKIND TO LIVE IN A MULTI PLANETARY WORLD ,LIKE HOW MANY OF US NORMAL HUMAN BEINGS HAVE ACHIEVED SO MUCH IN SO LESS TIME ? ACTUALLY SOMETIMES THE QUESTION ARISES IN MY MIND WHETHER IS HE A “ET” AMONG US ? EVEN THOUGH HE MAY BE LOOKING AT THE WORLD THROUGH ROSE COLORED GLASSES I PERSONALLY LIKE IT AND I WILL STILL ROOT FOR HIM !!

  2. Night Writer July 29, 2016 11:11 am

    The one thing that got me is the realization that if you own a car that can drive itself that you could easy put it to use when you are using it to make money.

    I’d be very interested in a landscape of the self-driving car patents.

  3. Night Writer July 29, 2016 11:31 am

    I think you have some good points about Tesla’s problems, but one of the odd things about our world now is that the stock market is kind of like a venture fund now. There is so much cash that a good story can pump a stock and give it capital to grow and do R&D. This is related to one of the reasons that patents have been de-emphasized.

    Another point: Tesla said they are going to make their patents open and technology. Is that true of their software for autonomous driving? I think they are going to have to find some way of protecting that. Be interesting to find out what happens with that.

  4. Rob Burke July 29, 2016 12:58 pm

    What a poorly written article. Lets get past the autopilot death. Go look at the stats for any other car company and you will see Tesla is leaps and bounds above the competition. Elon has followed through on almost all of his Master Plan part 1 so part 2 doesn’t “reek of overconfidence” Maybe next time try to write something worth reading instead of this click bait garbage.

  5. Simon Elliott July 29, 2016 3:12 pm

    Elon Musk has been successful in things with niche offering in a low competition environment (e.g. rockets), or things with very low production costs (e.g. software). But mass production car building is a high volume, low margin business that requires really tight controls to make it work. Basically, all the parts in a car are expensive. Its one thing to sell a really cool car for $70-100K, but another to be profitable with 35K vehicles.

  6. Gene Quinn July 29, 2016 7:00 pm

    Rob-

    Clearly this article has hit a sensitive nerve. While I’m glad you took the time to read the article, I thought I’d clear a couple things up.

    Obviously, you are wrong. The article is NOT poorly written. The fact that you disagree does not make it a bad article, an article that is poorly researched, or an article that is poorly written.

    The article is certainly not click bait, although Elon Musk fans such as you no doubt will disagree. The article lays out the reality that Elon Musk is having difficulty delivery on time and has substantial warranty issues that are far greater than other car manufacturers. Thus, his overly optimistic projections about entire new classes of vehicle should be met with enormous skepticism. He should really be spending more time on what he cannot seem to deliver and on why his warranty issues are so voluminous. When you are as far behind as Tesla is on those two issues overly optimistic goals suggest Musk is out of touch with day to day reality.

    Finally, given Tesla warranty problems I’m not sure how you could possibly say that Tesla is leaps and bounds above the competition. Tesla is not profitable and they are having problems with quality. That isn’t Steve’s opinion, those are facts. See:

    http://www.reuters.com/article/us-tesla-warranty-idUSKCN0XO1M3

    While Tesla continues to lose money, Ford has posted record profits. See:

    http://www.marketwatch.com/story/ford-posts-record-profit-as-truck-revamp-pays-off-2016-04-28

    So, despite what you wish to be true, you are wrong to stay that Tesla is leaps and bounds above the competition. Tesla can’t have low quality and bleed money forever, and a company like that simply cannot be said to be leaps and bounds above the competition. If anything, it is the competition that is leaps and bounds above Tesla.

    -Gene

  7. patent leather July 29, 2016 11:06 pm

    Steve, this is a timely article and all of it is true. There’s been lots written about Tesla and its troubles. Here’s one recent article: http://seekingalpha.com/article/3990216-expect-expecting-record-tesla-losses
    (although admittedly, articles on that site tend to have their own agenda).
    Musk as you state is clearly overconfident which is why I currently have sold short Tesla stock (meaning I am betting that the stock goes down).

  8. Night Writer July 30, 2016 11:21 am

    @7 patent leather. Interesting the short. I think if nothing else Tesla is very interesting. I think the biggest threat to Tesla is luxury car companies like BMW.

    I would still like to see how Elon protects his software. And I would like to see how Lemley protects his IP at his start-up–my guess draconian employment contracts.

  9. Ely Erlich July 31, 2016 5:28 am

    Gene,

    While I’m not agreeing with Rob’s generalisation about the article, I was also struck by the tone in the paragraph about the autopilot death.

    One death per 130 million / 89 million miles sounds to me that it could, perhaps, be comparatively excellent, when compared to human error death. Without the comparative statistic giving context the tone of the paragraph indeed does not sound justified.

    No one can reasonably demand 100% efficiency from any robotic system.

    Best regards,
    Ely

  10. Ely Erlich July 31, 2016 5:31 am

    Not to mention that 1 death (if that’s all that there has been) is even able to be translated into a reliable statistic yet.

  11. Concerned July 31, 2016 9:07 am

    Steve –
    Thanks for a timely article that is both is well written with fairness and balance. Really, one could easily be much harsher on Tesla and Mr. Musk. For example, there are several articles opining that the main reason Tesla needs to acquire Solar City is to reduce the cost of raising funds for new debt, and ultimately the potential reputation damage to Mr. Musk if Solar City fails. I think Night Writer @3 makes an interesting point about Tesla promising to make their patents available at no cost to other EV manufactures and then what about software? Well it may be that Tesla, like some other car manufacturers, is mainly an integrator of technology, thus important software modules such as those from Mobileye are not Tesla’s to offer.
    Keep up the good work!

  12. Night Writer August 1, 2016 7:36 am

    The solar city merger is because they are starting to make batteries that they want to pair with the solar panels of solar city. It makes sense.

    @11 Maybe about not owning the rights. Pretty sure what is behind it is protecting the IP. You know sharing car IP is different because you need a giant factor to use it.

  13. Richard Johnson August 2, 2016 8:27 pm

    Please fix typo: According to article you linked to, SpaceX holds $255 MILLION of SolarCity bonds. Not “Tens of Billions”.